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The FCC wants answers from Verizon
This morning, the Federal Communications Commission sent a letter to Verizon Wireless asking the company: What's up with doubling the penalties for switching carriers?
Last month, Verizon increased the early termination fee for smart phone customers from $150 to $350. Verizon said smart phones have become more expensive to subsidize. The company says when customers bail on their contracts, they make out pretty good because they're getting a discount on the phone at first and then only paying $150 to get out.
But yesterday, Senator Amy Klobuchar (D-Minn) introduced a bill that would prevent wireless companies from doing this sort of thing. More from the Washington Post:
"Changing your wireless provider shouldn't break the bank," said Klobuchar in a release. "Forcing consumers to pay outrageous fees bearing little to no relation to the cost of their handset devices is anti-consumer and anti-competitive."
In the bill, a wireless carrier would be prevented from charging an ETF that is higher than the discount in a cellphone that the wireless company offers consumers for entering into a multi-year contract. For example, if a wireless consumer enters into a two-year contract and receives a $150 discount with the contract, the ETF cannot exceed $150.
In no way could I be considered an apologist for mobile phone companies. On one occasion years ago, I got into a screaming match with a cell phone customer service rep. I bet they still play the recording of that call at company parties.
But it's hard to say that people are being victimized when they are signing a contract. They know the terms of the contract at the time they are signing it. You can just buy the phone for full price and avoid the contract. If you want the discount, you have to keep the service a certain period of time or pay the price. And if you don't think $350 is fair, switch companies. No other company has followed Verizon so far.
But the FCC is also asking Verizon to explain why customers are getting charged $1.99 for accidentally hitting the "access web" key. Now, this I have a problem with. I do that quite a bit, accidentally start the web application when I'm trying to do something else. I haven't seen any charges, but I'm not with Verizon. One customer explained it this way to the New York Times:
"Virtually every bill I get has a couple of erroneous data charges at $1.99 each--yet we download no data.
"Here's how it works. They configure the phones to have multiple easily hit keystrokes to launch 'Get it now' or 'Mobile Web'--usually a single key like an arrow key. Often we have no idea what key we hit, but up pops one of these screens. The instant you call the function, they charge you the data fee.
I'm having flashbacks to that shouting match. Does it make your blood boil? What about the early termination fee issue?
Scott:
I'd take exception to the notion that customers are signing a contract and are at fault if they don't know what they are agreeing to.
I recently added a line/phone with my carrier. I purchased the phone myself without subsidy from the carrier. Last month I saw in small print that I was now under contact for two years and would face a $200 early termination fee. At not time when I talked to the rep to activate the phone was I told that I was entering an agreement. I would never have added the line had that been the case.
I've been going back and forth with Sprint and am waiting until I cool down a bit more before re-engaging them.
If they want to encourage loyalty, how about providing good service rather than increasing their termination fees?
I'd love to see net neutrality applied to cell phone carriers. Right now, it is waaaay more expensive per kilobyte to send a text message than to speak on the phone. This would also solve the annoying web data issue because sending 0 or 1kb when hitting the button would rack up the same charges as speaking on the phone for well under a second.
I don't think I agree Matt. The link you provided goes to T-Mobile. They are a service provider, not a phone retailer. It makes sense to me that they wouldn't provide a way to buy just the phone on their site. You would have to go to a phone retailer for that.
I'm with Scott on this one. The switch penalty is part of the product offering. If Verizon charges heavily to switch away, then I will consider that as part of my buying decision. If they are burying that fee deep down in the fine print, however, then I think that there's a consumer deception argument to be made.
Personally, the complexity of mobile pricing annoys me to no end. I would LOVE to see it change. I don't, however, believe that there is a need for legislation just because I don't like it.
I’m not sure that we disagree, Dan. I agree with you that T-Mobile is a service provider, and that it makes sense that they would be offering the phone as part of a package to sell their service. What I was trying to point out was that service providers like Verizon and T-Mobile are profitable with the lower opt out fee. The increase in the fee is mere gouging, at a time when most consumers can’t afford it. The Verizon complaint that customers “make out pretty good†is not much of a justification for the gouge.
Also, I doubt that Verizon informed the new customers who signed up for a new plan that the cancellation fee had doubled. Like most adhesion contracts, the theory behind the transaction is that the buyer assented to the terms, but the reality is that the leveraged party, in this case the cell service provider, doesn’t want the buyer aware of terms that might deter the sale. My argument is that adhesion contracts are per se dishonest, because they’re based on the faulty premise that those who sign them read and understand them. Assent is required to form a valid contract!
Complexity is a hiding place for deceit. The complexity of mobile pricing you complain of is another symptom of an industry bilking its customers. Similar to the industry-wide use of adhesion contracts, it’s an indication of an industry that’s been allowed to systemically bilk its customers.
I still don't think we agree... on two points.
One, I don't (and I understand that this is a very personal decision) find anything unethical about a company charging as much as it possibly can. If you prefer to call that gouging, I'm ok with that. Admittedly, I won't hold onto this position in all cases. I WOULD call jacking gasoline prices in New Orleans post-Katrina gouging.
Two, I don't agree that because people don't understand a contract, it is therefore deceitful. It seems like it would be hard to make a contract for anything by that logic. Maybe you're arguing that the language is too complex and should be simplified. That's certainly fair. My At&t contract was easy enough to understand, but I haven't seen the Verizon one. I certainly agree that it's in Verizon's best interest to keep that fee obscured.
Fair enough, Dan. We do disagree, on both points.
If you’re okay with a company charging as much as it can for its product as principle in most situations, why is charging more for gas in post-Katrina NOLA gouging? If human suffering is the test, wouldn’t there be infinite examples of gouging?
My argument is that there can be no contract where a party to the agreement doesn’t understand the terms. It’s impossible to assent to an agreement if you don’t know what you’re agreeing to. This is the fundamental problem with adhesion contracts.
Another problem is that unconscionable agreements are unenforceable, and adhesion contracts often include unconscionable terms. Everyone remembers the old credit card agreement favorite: you agree that we can change the terms at any time. What agreements between comparably situated parties include terms like that?
Credit card companies are able to get away with terms like that because our government condones usury, and because too many capitalists have become cannibals.
"But it’s hard to say that people are being victimized when they are signing a contract. They know the terms of the contract at the time they are signing it."
This is an absolute myth about adhesion contracts, one that only serves to give this type of contract, in which the party with all the power makes all the terms, false legitimacy.
"You can just buy the phone for full price and avoid the contract."
I just went to my service provider to check the price of the latest version of my phone, the HTC Touch Pro2 (I currently have a G1). It shows the retail price of the phone on the webpage, but it only allows you to purchase it by buying a plan. Check it <a href="http://www.t-mobile.com/shop/Phones/Cell-Phone-Detail.aspx?cell-phone=HT... target="out">Link</a>.
This indicates that it's the service providers that benefit from the contract/phone bundling, and not the consumer.
The notions that consumers know all the terms of adhesion contracts they enter, or that they have the freedom to easily avoid the proffered "deals," are merely myths.
I recently had a go round with Direct TV over the early termination fee. I tried to get them to wave the fee since they dropped VS and I like to watch Indy Car racing on that channel. They told me to take a hike and pay the fee. They said the ctranct reads says they can "Change programming at any time"
My response was so you could eliminate all the channels I get and her response was yes that is true. In that case if I wanted to switch I will still owe the fee.
So in theory I could be getting no service from Direct TV and that would be within the bounds of our contract.
Adhesion contract = crock.
